Beefed up: McDonald's edging out KFC, Pizza Hut in China revival battle

Thu Feb 4, 2016 9:06pm EST
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By Adam Jourdan

SHANGHAI (Reuters) - Yum Brands Inc (YUM.N: Quote), the home of KFC and Pizza Hut, is falling behind rival McDonald's Corp (MCD.N: Quote) as the pair battle to revive flagging sales in China - a headache for Yum as it looks to spin off operations in its biggest market.

A Reuters analysis of same-store sales data suggests McDonald's is recovering faster in China than larger rival Yum as both seek to bounce back from a slew of food safety scandals dating back to 2012.

McDonald's said last week fourth-quarter same-store sales in China rose 4 percent, a second straight quarter of growth. On Wednesday, Yum said its same-store sales, reflecting underlying growth, also returned to growth in the second half - but more slowly, leaving annual China sales falling for the first time.

Researchers and consumers said there's no simple answer to explain why McDonald's is faring better than Yum. A weaker economy and strengthening local rivals are among a complex cocktail of issues both firms must deal with in future strategy, including Yum's China spinoff, due later this year.

Yum is still the largest fast food chain in China, but McDonald's has one in-built advantage: the country's diners remain particularly sensitive about chicken products, which were at the heart of the scandal in 2012.

"Hearing all the rumours about chickens, I now very rarely go to KFC or eat McDonald's chicken wings." said Yang Luo, 26, a sales manager in Shanghai. "Hamburgers are okay, though."

Yum's 0.4 percent sales drop in 2015 in China, after two years of flatline growth, underlines how managers have struggled to repair its reputation. Chinese diners once flocked to its outlets - as well as to McDonald's - helping drive revenue growth of nearly 30 percent each year between 2006 and 2012.

"After the food scares erupted, me and my family didn't go for a long time to these fast food chains," said Zhao Ruoqing, 24, a student in the western Chinese city of Chengdu.   Continued...

A burger set is displayed at a McDonald's restaurant in Hong Kong in this photo illustration taken July 31, 2014. REUTERS/Bobby Yip